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Estimates of the elasticity of substitution between imported and domestically produced goods classified at the input-output level of aggregation



This empirical study of Armington elasticities between Australian domestically produced commodities and imported commodities of the same name follows directly from Alaouze, Marsden and Zeitsch [AMZ] (1977) (see Impact Project Working Paper O-11, available from this web site). In the present study the AMZ models were estimated from data constructed at the input-output [IO] (rather than the four-digit ASIC) level of aggregation. The major results obtained here are in basic agreement with those in AMZ. However, estimated substitution elasticities at this higher level of aggregation tended to be lower than those obtained in AMZ. Nevertheless, the elasticities of substitution estimated here at the IO aggregation level fell within the range of the estimates for any given IO category's ASIC components in those cases where substitution elasticities for two or more ASICs belonging to the same IO category were estimated in the AMZ study.

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